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Modest Skilled Nursing Facility Payment Update and Policy Updates in 2022 Proposed Rule

This week, our In Focus reviews the fiscal year (FY) 2022 skilled nursing facility (SNF) proposed payment rule, released by the Centers for Medicare & Medicaid Services (CMS) on April 8, 2021. If the proposals contained in the rule are foreshadowing, SNFs will continue to face financial pressures coming out of the public health emergency. This payment update, combined with other policy proposals, is likely to lead to the smallest payment update since the Medicare Access and CHIP Reauthorization Act of 2015 set a 1 percent increase in FY 2018. The rule proposes a net payment update of 1.3 percent after accounting for forecast error and the multifactor productivity adjustment. In addition to the payment update, CMS proposes changes to the SNF Quality Reporting Program (QRP), and the SNF Value-Based Program (VBP) for FY 2022. Notably, CMS proposes an eventual payment correction to achieve a budget neutral implementation of the Patient-Driven Payment Model (PDPM) that could result in a 5 percent rate reduction.

Payment Proposals

Patient-Driven Payment Model (PDPM) Updates

In October 2019, CMS changed the reimbursement methodology for SNF payments from resource utilization groupings (RUGs), which was largely based on therapy minutes provided, to the Patient Driven Payment Model (PDPM), which is driven by clinical characteristics.  CMS identified an unintended increase in payments of approximately 5 percent, or $1.7 billion in FY 2020, the first year of the payment system change. As PDPM was to be implemented in a budget neutral manner, CMS is seeking feedback on a potential methodology for recalibrating the adjustment that would account for the potential effects of the COVID without compromising the accuracy of the adjustment. In particular, CMS is asking for comments on whether any necessary adjustment should be delayed or phased in over time to provide payment stability. The SNF industry will oppose the cuts. However, recognizing that they are likely inevitable there will be a strong push for both a delayed and phased approach particularly as many SNFs are still struggling to recover from the impact of COVID.

CMS continues to monitor and make changes to clinical group mapping based on ICD-10 diagnoses and include those changes in the rulemaking process. For the most part, this involves recategorizing what clinical groups given diagnoses fall into. This rule includes 6 such changes often moving diagnoses from or to return to provider and across the various clinical groupings.

Medicare Part A SNF Payment Update

CMS estimates an increase of approximately $444 million in Medicare Part A payments to SNFs in FY 2022 based on the payment update. The estimate reflects an update to the payment rates of 1.3 percent, based on a 2.3 percent market basket update, less a 0.8 percentage point forecast error adjustment, and a 0.2 percentage point multifactor productivity adjustment. Additionally, there is a $1.2 million decrease due to the proposed rate reduction accounting for the blood-clotting factors exclusion in consolidated billing. These figures do not incorporate the SNF VBP reductions that are estimated to be $184 million.

Value-Based Program

Given all that has occurred due to COVID, CMS proposes to suppress the SNF 30-Day All-Cause Readmission Measure which is the basis for the SNF VBP. Subsequently, the proposal is to assign a performance score of zero to all participating SNFs, essentially leveling the playing field. To maintain compliance with the existing payback percentage policy CMS proposes to reduce the otherwise applicable federal per diem rate for each SNF by 2 percent and award SNFs 60 percent of that withhold, resulting in a 1.2 percent payback percentage to those SNFs, except for SNFs that are subject to the Low Volume Adjustment policy who receive 100 percent of their withholding. Due to provisions from the Consolidated Appropriations Act, 2021 allowing the Secretary to expand the SNF VBP program and apply up to ten measures for payments beginning in FY 2024, CMS is seeking feedback on the expansion of the program. This could include collecting data on all residents of a nursing home regardless of the payer as a truer representation of the quality of care overall.


CMS proposes to rebase and revise the SNF market basket to improve payment accuracy under the SNF PPS by proposing to use a 2018-based SNF market basket to update the PPS payment rates, instead of the 2014-based SNF market basket. This is a typical pattern of rebasing after four years.

Quality Reporting Program

The SNF QRP is a pay-for-reporting program. SNFs that do not meet reporting requirements may be subject to a 2 percent reduction in their annual update. CMS proposes two new measures – Healthcare-Associated Infections and COVID Vaccination Coverage among Healthcare Personnel – and updates the specifications for the Transfer of Health Information to exclude SNF discharges to home health or hospice from the denominator to avoid double counting.

Other Regulatory Activity

In tandem with the release of the proposed rule, CMS issued a policy memo announcing the termination of several 1135 waivers related to resident transfers, care planning, and timeframes for assessments. These waivers will end on May 10, 2021. As the public health emergency continues to evolve, CMS continues to review the need for waivers that have been implemented. One of the most significant waivers, that of the 3-day prior hospitalization requirement, remains in effect. The most recent update of the blanket waivers for health care providers also includes these changes. 


Nursing homes remain in the spotlight given the enormous effects of the pandemic on older adults and particularly those residing in congregate care settings. Reform recommendations are coming from many areas including proposals from industry associations calling for additional funding through Medicaid, new allowable cost guidelines, and reform to VBP programs, particularly at the state level. The National Academies of Sciences, Engineering, and Medicine through the Committee on the Quality of Care in Nursing Homes is completing a comprehensive review of care delivery, regulation, reimbursement, and quality to develop a set of findings and recommendations for improving the quality of care in today’s nursing homes. It is clear that change remains on the horizon for nursing homes including downward pressure on Medicare reimbursement, how state Medicaid agencies will react to Medicare payment system change as well as a renewed focus on quality improvement, and market pressures increasing the demand for care delivered in people’s homes. The impacts of these reform efforts taken together will be significant for the nursing home industry, state Medicaid agencies, health plans, and people in need of post-acute and long-term care.  For questions, please contact HMA Senior Consultant Aaron Tripp.